UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2022

 

Or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to         

 

Commission File Number: 001-08594

 

PRESIDENTIAL REALTY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   13-1954619
(State or Other Jurisdiction of
Incorporation or Organization)		   (I.R.S. Employer
Identification No.)

 

530 Seventh Avenue, Suite 407

New York, NY 10018

(Address of Principal Executive Office)

 

Registrant’s Telephone Number, Including Area Code: (914) 948-1300

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☒
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 14, 2022, there were 442,533 shares of Class A common stock and 4,746,147 shares of Class B common stock outstanding.

 

 

 

 

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES 

 

Index to Form 10-Q

For the Quarterly Period Ended

September 30, 2022

 

    Page
     
Part I Financial Information (Unaudited)  
     
Item 1. Financial Statements 1
  Consolidated Balance Sheets (Unaudited) 1
  Consolidated Statements of Operations (Unaudited) 2
  Consolidated Statements of Cash Flows (Unaudited) 4
  Notes to Consolidated Financial Statements (Unaudited) 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
     
Item 4. Controls and Procedures 22
     
Part II Other Information  
     
Item 1. Legal Proceedings 23
     
Item 6. Exhibits 23

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    September 30,
 2022		     December 31,
 2021		  
Assets   (Unaudited)        
             
Real estate   $ 1,580,226     $ 1,545,347  
Less: accumulated depreciation     944,165       901,047  
                 
Net real estate     636,061       644,300  
Investment in Avalon Jubilee, LLC     -       -  
Prepaid expenses     106,311       89,411  
Other receivables (net of valuation allowance of                
$7,240 at September 30, 2022 and $6,235 at December 31, 2021)     23,190       25,982  
Cash     154,651       225,029  
Mortgage escrow     81,531       59,603  
Other assets     5,283       5,304  
Total Assets   $ 1,007,027     $ 1,049,629  
                 
Liabilities and Equity                
                 
Liabilities:                
Mortgage payable, net   $ 1,453,100     $ 1,473,525  
Accounts payable and accrued liabilities     516,768       399,985  
Other liabilities     58,736       77,501  
                 
Total Liabilities     2,028,604       1,951,011  
                 
Presidential Stockholders’ Deficit:                
Common stock: par value $.00001 per share                

 

    September 30,
2022		     December 31,
2021		              
Class A                        
Authorized:     700,000       700,000                  
Issued and Outstanding:     442,533       442,533       4       4  
                                 
                                 
Class B                                
Authorized:     999,300,000       999,300,000                  
Issued and Outstanding:     4,746,147       4,746,147       47       47  
                                 
Additional paid-in capital                     8,122,108       8,122,108  
Accumulated deficit                     (9,143,736 )     (9,023,541 )
Total Stockholders’ Deficit                     (1,021,577 )     (901,382 )
Total Liabilities and Stockholders’ Deficit                   $ 1,007,027     $ 1,049,629  

 

1

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    THREE MONTHS ENDED
SEPTEMBER 30,		     NINE MONTHS ENDED
SEPTEMBER 30,		  
    2022     2021     2022     2021  
Revenues:                        
Rental   $ 275,935     $ 244,590     $ 828,708     $ 761,765  
Total Revenue     275,935       244,590       828,708       761,765  
                                 
Costs and Expenses:                                
General and administrative     71,987       85,207       352,776       200,569  
                                 
Rental property:                                
Operating expenses     144,062       114,962       442,486       403,095  
Interest expense and amortization of mortgage costs     27,066       28,136       80,721       83,263  
Real estate taxes     10,333       10,927       29,810       32,615  
Depreciation on real estate     16,570       15,250       43,118       42,446  
                                 
Total Costs and Expenses     270,018       254,482       948,911       761,988  
                                 
Other Income:                                
Loan forgivness SBA PPP     -       42,100       -       42,100  
Investment income     3       11       8       11  
      3       42,111       8       42,111  
Net (loss) income     5,920       32,219     $ (120,195 )   $ 41,888  
                                 
Net (loss) income per Common Share -basic   $ 0.00     $ 0.01     $ (0.02 )   $ 0.01  
Net (loss) income per Common Share -diluted   $ 0.00     $ 0.01     $ (0.02 )   $ 0.01  
Weighted Average Number of Shares Outstanding                                
basic     5,188,680       5,188,680       5,188,680       5,188,680  
diluted     5,738,680       5,738,680       5,188,680       5,738,680  

 

2

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

    Common
Stock		     Additional
Paid-in
Capital		     Accumulated
Deficit		     Total
Stockholders’
Equity
(Deficit)		  
                         
Balance at December 31, 2021   $     51     $ 8,122,108     $ (9,023,541 )   $ (901,382 )
                                 
Net loss     -       -       (120,195 )     (120,195 )
                                 
Balance at September 30, 2022     51       8,122,108       (9,143,736 )     (1,021,577 )
                                 
Balance at December 31, 2020   $ 51     $ 8,122,108     $ (8,975,791 )   $ (853,632 )
                                 
Net income     -       -       41,888       41,888  
                                 
Balance at September 30, 2021     51       8,122,108       (8,933,903 )     (811,744 )

 

3

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    FOR THE NINE MONTHS ENDED  
    SEPTEMBER 30,  
    2022     2021  
    Unaudited     Unaudited  
             
Net (loss) income   $ (120,195 )   $ 41,888  
                 
Adjustments to reconcile net loss to net cash flow provided by operating activities:                
Depreciation and amortization     54,917       54,245  
Bad debt     15       7,587  
Loan forgiveness SBA PPP    
-
       (42,100 )
Changes in assets and liabilities:                
Decrease (increase) in:                
Other receivables     2,777       (3,495 )
Prepaid expenses     (16,900 )     (25,954 )
Other assets     21       (10 )
Increase (decreases) in:                
Accounts payable and accrued liabilities     116,783       (6,070 )
Other liabilities     (18,765 )     6,701  
                 
Total adjustments     138,848       (9,096 )
                 
Net cash flow provided by operating activities     18,653       32,792  
                 
Cash Flows from Investing Activities:                
Payments disbursed for capital improvements     (34,879 )     (14,773 )
                 
Net cash flow used in investing activities     (34,879 )     (14,773 )
                 
Cash Flows from Financing Activities:                
Principal payments on mortgage debt     (32,224 )     (30,313 )
                 
Net cash flow used in  financing activities     (32,224 )     (30,313 )
                 
Net decrease in cash and restricted cash     (48,450 )     (12,294 )
                 
Cash and restricted cash, Beginning of Year     284,632       264,176  
                 
Cash and restricted cash, End of Year (1)   $ 236,182     $ 251,882  
Supplemental cash flow information:                
Interest paid in cash   $ 69,552     $ 71,464  

 

(1) This line item includes restricted cash of $81,531 and $50,284 at September 30, 2022 and September 30, 2021, respectively. These amounts are presented in the “mortgage escrow” caption on the accompanying consolidated balance sheets.

 

4

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

Presidential Realty Corporation (“Presidential” or the “Company”) is operated as a self-administrated, self-managed Real Estate Investment Trust (“REIT”). The Company is engaged principally in the ownership of income producing real estate. Presidential operates in a single business segment, investments in real estate related assets.

 

Basis of Presentation

 

At September 30, 2022, the Company had a loss from operations. This combined with a history of operating losses and working capital deficiency, has been detrimental to our operations and could potentially affect our ability to meet our obligations and continue as a going concern. Our ability to continue as a going concern is dependent upon the successful execution of strategies to achieve profitability and increase working capital by raising debt and/or equity. The accompanying financial statements do not include any adjustments that may result from this uncertainty.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information. The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s financial position and operating results. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2021 filed on March 31, 2022.

 

Real Estate

 

Real estate is stated at cost. Generally, depreciation is provided on the straight-line method over the assets estimated useful lives, which range from twenty to thirty-nine years for buildings and improvements and from three to ten years for furniture and equipment. Maintenance and repairs are charged to operations as incurred and renewals and replacements are capitalized. The Company reviews each of its property investments for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment of properties is determined to exist when estimated amounts recoverable through future operations on an undiscounted basis are below the properties carrying value. If a property is determined to be impaired, it is written down to its estimated fair value. As of September 30, 2022 and December 31, 2021, the Company did not identify any indicators of impairment.

 

Principles of Consolidation

 

The Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary, generally as a result of having the power to direct the activities that most significantly affect the VIE’s economic performance and holding variable interest that convey to the Company the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

 

The accompanying consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

Investments in Joint Venture

 

The Company has an equity investment in a joint venture and accounts for this investment using the fair value method of accounting.

 

5

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

1. Organization and Summary of Significant Accounting Policies (Continued)

 

Revenue Recognition

 

Rental revenues include revenues from the leasing of space at our Mapletree Property, which primarily consist of monthly base rents in addition to the reimbursement of utilities. Other rental revenues, which are included as a component of rental revenue, primarily include fees related to build-out or other services performed by the Company on the property.

 

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) effective January 1, 2018, and its adoption did not have a material effect on the consolidated financial statements, as the majority of the Company’s revenue is recognized under ASC 840, Leases, and subsequently ASC 842, Leases, upon its adoption, which are scoped out of ASC 606. ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. The Company’s other rental revenues recognized in accordance with ASC 606 are recognized over time as the performance obligations are satisfied. Such revenues are not material to the consolidated financial statements.

 

The Company adopted ASU 2016-02, Leases (ASC 842) effective January 1, 2019, and its adoption did not have a material effect on the consolidated financial statements. As a lessor, the adoption of ASU 2016-02 (as amended by subsequent ASUs) did not change the timing of revenue recognition of the Company’s rental revenues. Revenues from the leasing of space at our property to tenants includes (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of electric expense and (ii) reimbursement of real estate taxes. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.

 

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease, together with renewal options that are reasonably certain of being exercised. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of real estate taxes and electric expense are generally recognized in the same period as the related expenses are incurred, which did not change as a result of the adoption of ASU 2016-02.

 

The Company assess the collectability of lease receivables (including future minimum rental payments) both at commencement and throughout the lease term. If our assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis in accordance with ASC 842. 

 

Allowance for Doubtful Accounts

 

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Any subsequent recovery of tenant receivable that were previously reserved is recorded as a reduction in the allowance of bad debt. As of September 30, 2022 and December 31, 2021, the allowance relating to tenant receivables was $7,240 and $6,235, respectively.

 

6

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

1. Organization and Summary of Significant Accounting Policies (Continued)

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding (excluding non-vested shares) during each period. Diluted net income (loss) per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of non-vested shares. For the nine months ended September 30, 2022, the weighted average shares outstanding as used in the calculation of diluted loss per share do not include 550,000, of outstanding stock options, as their inclusion would be antidilutive.

 

Cash and cash equivalents

 

Cash includes cash on hand, cash in banks and cash in money market funds. Cash equivalents represent short-term, highly liquid investment which are readily convertible to cash and have maturities of three months or less.

 

Management Estimates

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates.

 

Accounting for Stock Awards

 

The Company recognizes the cost of employee and non-employee services received in exchange for awards of equity instruments as stock-based compensation expense. Stock-based compensation expense is measured at the grant date based on the fair value of the stock award and options, is recognized as an expense, less expected forfeitures, over the requisite service period, which typically equals the vesting period. Stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 was $0.

 

Accounting for Income Taxes

 

The Company accounts for income taxes utilizing the asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected future tax consequences of net operating loss carryforwards and temporary differences between the basis of assets and liabilities for financial reporting purposes and tax purposes and for net operating loss and other carryforwards. A valuation allowance is provided for deferred tax assets based on the likelihood of realization.

 

The Company recognizes the benefit of an uncertain tax position that it has taken or expect to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

 

The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdictions until the applicable statutes of limitation expire. As of September 30, 2022, the tax years 2019 and after remain subject to examination. The Company did not record unrecognized tax positions for the three and nine months ended September 30, 2022.

 

Mortgage costs

 

The Company amortizes mortgage costs over the life of the loan.

 

7

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

1. Organization and Summary of Significant Accounting Policies (Continued)

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022, for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements.

 

2. Real Estate

 

Real estate is comprised of the following:

 

    September 30,
2022		     December 31,
2021		  
             
Land   $ 79,100     $ 79,100  
Buildings     1,432,329       1,401,611  
Furniture and equipment     68,797       64,636  
                 
Total   $ 1,580,226     $ 1,545,347  

 

Rental revenue is from our Mapletree Property which constituted all of the rental revenue for the Company for the three and nine months ended September 30, 2022 and 2021.

 

3. Investment in Partnership

 

We own a 31.3333% interest in Avalon Jublee, LLC partnership with an aggregate fair value of $0. The Company has elected the fair value option versus accounting under the equity method as the fair value better represents the Company’s realization of this investment.

 

At September 30, 2022 the Avalon Property consisted of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land in Los Lunas, New Mexico.

 

8

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

3. Investment in Partnership (continued)

 

Summary financial information for Avalon Property (31.3333% owned) accounted for by the fair value method is as follows:

 

    December 31,  
    2021  
Condensed balance sheet      
Cash   $ 123,198  
Accounts receivable     16,575  
Inventory     2,165,837  
Total assets   $ 2,305,610  
         
Accounts payable   $ 504,547  
Other liabilities     690,978  
Loans from partners     555,104  
Partners’ capital     554,981  
Total liabilities and capital   $ 2,305,610  
         
Condensed statement of operations        
Gross receipts   $ 1,504,299  
Cost of goods sold     1,033,214  
Gross profit     471,085  
Other expenses(income)     537,916  
Net loss     (66,831 )
Net loss attributed to Presidential Realty Corporation   $ (20,940 )

 

9

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

4.Mortgage Debt

 

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit on the Mapletree Property. $123,757 of the Loan proceeds was set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly principal and interest payments of $11,308 and escrows for insurance, taxes and capital improvements. Escrow balances are considered restricted cash. The mortgage is presented net of unamortized Mortgage costs, the outstanding balance of the loan and loan costs were as follows:

 

    Mortgage     Unamortized     Interest  
    Balance     mortgage Costs     Expense  
                   
September 30, 2022 and the  nine month period then ended   $ 1,497,346     $        44,246     $ 68,922  
December 31, 2021 and the  Year then ended   $ 1,529,570     $ 56,045     $ 94,889  

 

The Company is required to maintain certain financial covenants on the mortgage. The Company was in compliance with the covenants on September 30, 2022 and December 31, 2021.

 

Maturities of Mortgage payments for the next five years are as follows:

 

2022   $ 13,162  
2023   $ 48,201  
2024   $ 51,189  
2025   $ 1,384,794  

 

5. Income Taxes

 

Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which it distributes at least 90% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on any of its taxable income as long as they distribute the required amounts to its shareholders.

 

ASC 740 prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of September 30, 2022, the tax years that remain open to examination by the federal, state, and local taxing authorities are the 2019 – 2021 tax years and the Company was not required to accrue any liability for those tax years.

 

The Company has accumulated a net operating loss carry forward of approximately $21,284,000. These net operating losses may be available in future years to reduce taxable income when and if it is generated. These loss carryforwards begin to expire in 2027 and are available to offset 100% of taxable income. Net operating losses generated in 2018 and thereafter will be available to offset 80% of taxable income beginning in 2021. Under the Cares Act, taxpayers with NOLs arising in tax years beginning in 2018, 2019 and 2020 can carry them back five years.

 

For the three and nine months ended September 30, 2022, the Company had taxable income of approximately $21,000 and $57,000 ($.00 per share), which was all ordinary income.

 

10

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

6. Commitments, Contingencies, Concentrations and Related parties

 

A) Related Parties

 

  1) Executive Employment Agreements

 

Nickolas W. Jekogian III –Mr. Jekogian is employed by the Company as the Chief Executive Officer on a month-to-month basis until such time as otherwise determined by the Company in its sole discretion. Mr. Jekogian has not received any salary for the three and nine months ended September 30, 2022 or 2021, and we do not anticipate paying him any salary in 2022.

 

Alexander Ludwig - Mr. Alexander Ludwig, is employed by the Company as the President, Chief Operating Officer and Principal Financial Officer. Mr. Ludwig has not received any salary for the three and nine months ended September 30, 2022 or 2021, and we do not anticipate paying him any salary in 2022.

 

  2) Property Management Agreement

 

On November 8, 2011, the Company and Signature Community Management LLC (“Signature”), (an entity owned by our CEO) entered into a Property Management Agreement pursuant to which the Company retained Signature as the exclusive, managing and leasing agent for the Company’s Mapletree Property. Signature receives compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The Property Management Agreement renewed for a one-year term on November 8, 2022 and will automatically renew for one-year terms until it is terminated by either party upon written notice. The Company incurred management fees of $12,836 and $10,680, and $35,486 and $33,354, for the three months and nine months ended September 30, 2022, and 2021, respectively.

 

The balance unpaid to Signature at September 30, 2022 and December 31, 2021, for management fees was $106,343 and $80,397, respectively and is recorded in accrued expenses.

 

  3) Asset Management Agreement

 

On November 8, 2011, the Company entered into an Asset Management Agreement with Signature Community Investment Group LLC (“SCIG”), (an entity owned by our CEO) pursuant to which the Company engaged SCIG to oversee the Mapletree Property. SCIG receives an asset management fee of 1.5% of the monthly gross rental revenues collected for the Mapletree Property. The Asset Management Agreement renewed for a one-year term on November 8, 2022 and will automatically renew for one-year terms until it is terminated by either party upon written notice. The Company incurred asset management fees of $3,851 and $3,204, and $10,716 and $9,970 for the three and nine months ended September 30, 2022, and 2021, respectively.

 

The balance unpaid to SCIG at September 30, 2022 and December 31, 2021, for asset management fees was $48,838 and $38,122, respectively, and is recorded in accrued expenses.

 

B) Legal Proceedings

 

In the ordinary course of business, we may be subject to litigation from time to time. Except as discussed below, there is no current, pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of such party) which in our opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.

 

11

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

6. Commitments, Contingencies, Concentrations and Related parties (continued)

 

There is pending in the Supreme Court of the state of New York county of New York (Index No. 656191/2017) an action entitled MLF3 NWJ LLC filed in October of 2017, against Nickolas W. Jekogian, III, Presidential Realty Corporation, Presidential Realty Operating Partnership LP, First Capital Real Estate Trust Incorporated, First Capital Real Estate Operating Partnership, Nickolas W. Jekogian, JR. as trustee of The BBJ Family Irrevocable Trust, Alexander Ludwig, Signature Group Advisors LLC, Richard Brandt, Marjorie Feder as Executrix of the Estate of Robert Feder, Jeffrey F. Joseph, Jeffrey Rogers.

 

The litigation is related to actions taken by Mr. Jekogian individually on a real estate project and personal guarantee that predated his involvement with the Company.  The Plaintiff had received a judgment against Mr. Jekogian for approximately $1,500,000, in addition to attorneys’ fees, and had filed a lien on assets owned individually by Mr. Jekogian including certain options and warrants to purchase stock in the Company.   When the Company entered into the Contribution Agreement with FC REIT in January of 2017, Mr. Jekogian surrendered these options and warrants to purchase stock in the Company as part of the transaction. The Plaintiff is arguing that they had a lien on Mr. Jekogian’s options and warrants in the Company and that the actions taken by the Company, its Officers and Directors, in entering into the Contribution Agreement with FC REIT fraudulently conveyed their interests in the options and warrants owned by Mr. Jekogian and damaged their position. The Company, its Officers and Directors, named in this action had no involvement in this personal matter relating to Mr. Jekogian and answered the complaint in February of 2018 stating that it had no merit. Since that time, the Company has received no additional notification that the action against the Company, its Officers and Directors is moving forward. The Company believes that as to the Company, Officers and Directors, the claims have no merit.

 

C) Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk.

 

Three customers accounted for approximately 24%, 21%, and 16% of the Company’s accounts receivable as of September 30, 2022.

 

Two customers accounted for approximately 23%, and 29% of the Company’s accounts receivable as of December 31, 2021.

 

The Company generally maintains its cash in money market funds with financial institutions. Although the Company may maintain balances at these institutions in excess of the FDIC insurance limit, the Company does not anticipate and has not experienced any losses.

 

7. Common Stock

 

The Class A and Class B common stock of Presidential has identical rights except that the holders of Class A common stock are entitled to elect two-thirds of the Board of Directors and the holders of the Class B common stock are entitled to elect one-third of the Board of Directors.

 

12

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

8. Stock-based Compensation

 

On August 15, 2012, the stockholders approved the 2012 Incentive Plan which reserves 1,000,000 shares of Class B common stock for distribution to executive officers (including executive officers who are also directors), employees, directors, independent agents, consultants and attorneys in accordance with the 2012 Plan’s terms. The 2012 Plan provides for the grant of any or all of the following types of awards (collectively, “Awards”): (a) stock options and (b) restricted stock. Awards may be granted singly, in combination, or in tandem, as determined by the Compensation Committee. The maximum number of shares of Class B common stock with respect to which incentive stock options may be granted to any one individual in any calendar year shall not exceed $100,000 in fair market value as determined at the time of grant. If any outstanding Award is canceled, forfeited, delivered to us as payment for the exercise price or surrendered to us for tax withholding purposes, shares of Class B common stock allocable to such Award may again be available for Awards under the 2012 Incentive Plan.

 

The following summarizes the outstanding and vested stock option activity as of September 30, 2022 and December 31, 2021: 

 

    Shares
Underling
Options		     Weighted
Average
Exercise Price
(per share)		     Weighted
Average
Remaining
Contractual
Term
(in years)		  
                   
Outstanding at December 31, 2021     550,000     $ 0.00       5  
Granted     -       -          
Forfeited and expired     -       -          
Outstanding at September 30, 2022     550,000     $ 0.00       5  

 

9. Fair Value Measurements

 

ASC 820 defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). The standards generally require the use of one or more valuation techniques that include the market, income or cost approaches. The standards also establish market or observable inputs as the preferred source of values when using such valuation techniques, followed by assumptions based on hypothetical transactions in the absence of market inputs. ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.

 

13

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

9. Fair Value Measurements (Continued)

 

Non-Financial Assets Measured at Fair Value on a Recurring Basis

 

The Non-Financial asset that is measured at fair value on our consolidated balance sheet consists of a real estate partnership investment. The tables below aggregate the fair values of the non-financial assets by their levels in the fair value hierarchy.

 

      As of September 30, 2022  
      Total       Level 1       Level 2       Level 3  
Investment in Avalon Jubilee, LLC   $ -     $ -     $ -     $ -  

 

      As of December 31, 2021  
      Total       Level 1       Level 2       Level 3  
Investment in Avalon Jubilee, LLC   $ -     $ -     $ -     $ -  

 

Investment in Avalon Jubilee, LLC

 

Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, current and anticipated market conditions, and industry publications. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of this real estate partnership investment.

 

    Range
    September 30,
2022		   December 31,
2021
Unobservable Quantitative Input        
Discount rates   16% to 20%   16% to 20%

 

The inputs above are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of the investment. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of the investment resulting from a change in the terminal capitalization rate may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of real estate investments that are classified as Level 3.

 

    September 30,
2022		     December 31,
2021		  
             
Beginning Balance   $        -0-     $       -0-  
Net unrealized gain(loss) on held investment     -0-       -0-  
Purchase /additional funding     -0-       -0-  
Ending balance   $ -0-     $ -0-  

 

14

 

 

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

 

 

9. Fair Value Measurements (Continued)

 

The carrying amounts of cash and cash equivalents, escrow, deposits and other assets and receivables and accrued expenses and other liabilities are not measured at fair value on a recurring basis but are considered to be recorded at amounts that approximate fair value.

 

At September 30, 2022, the $1,479,551 estimated fair value of the Company’s mortgage payable is greater than the $1,497,346 carrying value (before unamortized deferred financing costs of $48,179), assuming a blended market interest rate of 4.34% based on the 2.8 year remaining term to maturity of the mortgage

 

At December 31, 2021, the $1,598,382 estimated fair value of the Company’s mortgage payable is greater than the $1,529,570 carrying value (before unamortized deferred financing costs of $56,045), assuming a blended market interest rate of 4.62% based on the 3.8 year remaining term to maturity of the mortgage.

 

The fair value of the Company’s mortgages payable is estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

 

Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

10. Restricted Cash

 

Restricted cash represents funds held for specific purposes and are therefore not available for general corporate purposes. The mortgage escrow reflected on the consolidated balance sheets represents funds that are held by the Company specifically for capital improvements, insurance and real estate taxes on the Mapletree Property.

 

11. Future Minimum Annual Base Rents

 

Future minimum annual base rental revenue for the next five years for commercial real estate owned at September 30, 2022, and subject to non-cancelable operating leases is as follows:

 

Year Ending December 31,      
2022   $ 144,176  
2023     204,623  
2024     106,453  
2025     104,563  
2026     38,532  
Thereafter     -  
Total   $ 598,347  

 

15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This report contains statements that do not relate to historical facts, but are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to future events or trends, our future prospects and proposed development or business strategies, among other things. These statements can generally (although not always) be identified by their use of terms and phrases such as anticipate, appear, believe, continue, could, estimate, expect, indicate, intend, may, plan, possible, predict, project, pursue, will, would and other similar terms and phrases, as well as the use of the future tense. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

 

We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct. You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

 

  ● our ability to implement plans for growth;

 

  ● our ability to finance the acquisition of new real estate assets;

 

  ● our ability to manage growth;

 

  ● our ability to generate operating liquidity;

 

  ● our ability to attract and maintain tenants for our rental properties;

 

  ● the demand for rental properties and the creditworthiness of tenants;

 

  ● financial results for 2022 and beyond;

 

  ● future acquisitions and dispositions of assets;

 

  ● future development and redevelopment opportunities;

 

  ● future issuances of capital stock;

 

  ● market and industry trends;

 

  ● interest rates;

 

  ● the outcome and impact of any litigation;

 

  ● operating performance including statements relating to creating value for stockholders;

 

  ● governmental actions and initiatives;

 

  ● environmental and safety requirements;

 

  ● the form, timing and/or amount of dividend distributions in future periods.

 

16

 

 

Any forward-looking statements are based upon management’s beliefs, assumptions and expectations of our future performance, taking into account information currently available. These beliefs, assumptions and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:

 

  ● the availability and terms of capital and financing;

 

  ● the ability to refinance or repay indebtedness as it matures;

 

  ● the failure of purchase, sale, or other contracts to ultimately close;

 

  ● the failure to achieve anticipated benefits from acquisitions and investments or from dispositions;

 

  ● the potential dilutive effect of common or preferred stock offerings;

 

  ● the impact of future financing arrangements including secured and unsecured indebtedness;

 

  ● the availability of buyers and pricing with respect to the disposition of assets;

 

  ●

risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular;

     
  ● leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly developed and/or recently acquired space, and the risk of declining leasing rates;

 

  ● the adverse change in the financial condition of one or more of our major tenants;

 

  ● volatility in interest rates and insurance rates;

 

  ● competition from other developers or investors;

 

  ●

the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction

delays, cost overruns, and leasing risk);

 

  ● the loss of key personnel;

 

  ● the potential liability for uninsured losses, condemnation, or environmental issues;

 

  ● the potential liability for a failure to meet regulatory requirements;

 

  ● the financial condition and liquidity of, or disputes with, joint venture partners;

 

  ● any failure to comply with debt covenants under credit agreements;

 

  ● any failure to continue to qualify for taxation as a real estate investment trust and meet regulatory requirements;

 

  ● risks associated with the COVID 19 Pandemic;

 

  ● potential changes to tax legislation;

 

  ● potential changes to state, local or federal regulations applicable to our business;

 

  ● changes in demand for properties;

 

  ● risks associated with the acquisition, development, expansion, leasing and management of properties;

 

  ● significant costs related to condemnation, or environmental issues;

 

  ● those additional risks and factors discussed in reports filed with the Securities and Exchange Commission (“SEC”) by us.

 

17

 

 

In light of these risks and uncertainties, we may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in Part I Item 1A — Risk Factors of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, or investments we may make. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements.

 

You should read this Quarterly Report on Form 10-Q in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (including the documents incorporated by reference therein) completely and with the understanding that our actual future results may be materially different from what we expect. These forward-looking statements speak only as of the date of this report. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

 

Overview

 

We own 100% of the Mapletree Industrial Center located in Palmer, Massachusetts. This is a multi-tenant rental facility which was originally the Wickwire-Spencer Wire Mill until 1970 at which time it became rental space. The property consists of 31 buildings located on approximately 48 acres. Major tenants include Creative Material Technologies office and lab, Consolidated Lumber Transport office, Australian natural Soapworks, ESSROC Materials (a Portland cement distributor), Michael Houle, JP Mc Carthy & Sons and American Cable Assembly. The property offers traditional office space and industrial/warehouse space along with vacant land with rail access ready for development. The buildings comprise a total of 325,138 square feet, of which 316,979 is rented.

 

We own a 31.3333% non-controlling joint venture partnership interest in Avalon Jubilee LLC located in Los Lunas, New Mexico. The Avalon Property consists of 34 finished, single-family subdivision lots and approximately 21.42 acres of subsequent phases of undeveloped land in Los Lunas, New Mexico. 

 

We outsource the management of the Mapletree Industrial Center to Signature Community Management LLC (“Signature”) and our asset management to Signature Community Investment Group LLC (“SCIG”), companies owned by our CEO. We accrued a management fee of $35,486 and an asset management fee of $10,716 for the nine months ended September 30, 2022.

  

We obtain funds for working capital and investment from our available cash, operating activities, and refinancing of mortgage loans on our real estate.

 

18

 

 

On July 28, 2015, Palmer-Mapletree LLC, a wholly-owned subsidiary of the Company entered into a Loan Agreement (the “Loan Agreement”) with Natixis Real Estate Capital LLC providing for a mortgage loan in the principal amount of $1,750,000 (the “Loan”) at an interest rate of 6.031%. $934,794 of the loan proceeds were used to repay the prior mortgage loan and line of credit on the Mapletree Property. $123,757 of the Loan proceeds was set aside for capital improvements and reserves for the property. We received net proceeds of $585,125. The Loan matures on August 5, 2025 and requires monthly principal and interest payments of $11,308 and escrows for insurance, taxes and capital improvements. Escrow balances are considered restricted cash. The Company was in compliance with the loan covenants at September 30, 2022.

 

Critical Accounting Policies

 

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require difficult, complex and subjective judgments. Management has discussed with the Audit Committee the implementation of the critical accounting policies described below and the estimates required with respect to such policies.

 

Real Estate

 

Real estate is carried at cost, net of accumulated depreciation. Additions and improvements are capitalized whereas repairs and maintenance are charged to rental property operating expenses as incurred. Depreciation is generally provided on the straight-line method over the estimated useful life of the asset. The useful life of each property, as well as the allocation of the costs associated with a property to its various components, requires estimates by management. If management incorrectly estimates the allocation of those costs or incorrectly estimates the useful lives of its real estate, depreciation expense may be miscalculated.

 

The Company reviews its properties for impairment if events or changes in circumstances warrant. If impairment were to occur, the property would be written down to its estimated fair value. The Company assesses the recoverability of its investment in real estate based on undiscounted cash flow estimates. The future estimated cash flows of a property are based on current rental revenues and operating expenses, as well as the current local economic climate affecting the property. Considerable judgment is required in making these estimates and changes in these estimates could cause the estimated cash flows to change and impairment could occur. As of September 30, 2022, the Company’s net real estate was carried at $636,061.

 

Rental Revenue Recognition

 

Rental revenues include revenues from the leasing of space at our Mapletree Property, which primarily consist of monthly base rents in addition to the reimbursement of utilities. Other rental revenues, which are included as a component of rental revenue, primarily include fees related to build-out or other services performed by the Company on the property.

 

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) effective January 1, 2018, and its adoption did not have a material effect on the consolidated financial statements, as the majority of the Company’s revenue is recognized under ASC 840, Leases, and subsequently ASC 842, Leases, upon its adoption, which are scoped out of ASC 606. ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contract with customers and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. The Company’s other rental revenues recognized in accordance with ASC 606 are recognized over time as the performance obligations are satisfied. Such revenues are not material to the consolidated financial statements.

 

Revenues from the leasing of space at our property to tenants includes (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of electric expense and (ii) reimbursement of real estate taxes. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.

 

Revenues derived from fixed lease payments are recognized on a straight-line basis over the non-cancelable period of the lease, together with renewal options that are reasonably certain of being exercised. We commence rental revenue recognition when the underlying asset is available for use by the lessee. Revenue derived from the reimbursement of real estate taxes and electric expense are generally recognized in the same period as the related expenses are incurred, which did not change as a result of the adoption of ASU 2016-02.

 

19

 

 

The Company assesses the collectability of lease receivables (including future minimum rental payments) both at commencement and throughout the lease term. If our assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis in accordance with ASC 842. 

 

Allowance for Doubtful Accounts

 

The Company assesses the collectability of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Any subsequent recovery of tenant receivables that were previously reserved is recorded as a reduction in the allowance of bad debt. As of September 30, 2022 and December 31, 2021, the allowance relating to tenant receivables was $7,240 and $6,235, respectively.

 

Investments in Joint Venture

 

The Company has an equity investment in a joint venture and accounts for this investment using the fair value method of accounting.

 

Income Taxes

 

We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of using our ordinary tax loss carry forwards in 2021 there was no requirement to make a distribution in 2022. In addition, no provision for income taxes was required at December 31, 2021. If the Company fails to distribute the required amounts of income to its shareholders, or otherwise fails to meet the REIT requirements, we would fail to qualify as a REIT and substantial adverse tax consequences could result. We believe that we will not be required to pay a dividend in 2022 to maintain our REIT status.

  

Results of Operations

 

Results of Operations for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 as follows:

 

    2022     2021  
Total Revenue   $ 828,708     $ 761,765  
General and administrative expenses   $ 352,776     $ 200,569  
Operating expenses   $ 442,486     $ 403,095  
                 
Net (loss) income   $ (120,195 )   $ 41,888  

 

Revenues increased by $66,943 for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, as a result of increased rental rates at the Mapletree Property.

 

Net loss for the nine months ended September 30, 2022 was $120,195 compared to net income of $41,888 for the nine months ended September 30, 2021, an increased loss of $162,083. The increase was comprised of: (i) higher general and administrative expenses of approximately $152,000 due to increases in insurance and professional fees, and (ii) increased operating costs at the Mapletree Property of approximately $39,000, offset by increased rental revenue of $66,943. We incurred additional legal fees in the exploration of strategic growth transactions for the Company. In 2021 we also recorded $42,100 loan forgiveness from the SBA PPP loan.

 

20

 

 

Results of Operations for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 as follows:

 

    2022     2021  
Total Revenue   $ 275,935     $ 244,590  
General and administrative expenses   $ 71,987     $ 85,207  
Operating expenses   $ 144,062     $ 114,962  
                 
Net income   $ 5,920     $ 32,219  

 

Revenues increased by $31,345 for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, as a result of increased rental rates at the Mapletree Property.

 

Net income for the three months ended September 30, 2022 was $5,920 compared to $32,219 for the three months ended September 30, 2021, a decrease of $26,299. The decrease was comprised of: (i) higher operating expenses of $29,100, offset by lower general and administrative expense of $13,220 caused by decreases in professional fees, and increased rental revenue of $31,345. We incurred additional legal fees in 2021 for the exploration of a strategic growth transactions for the Company. These costs were offset by $42,100 loan forgiveness from the SBA PPP loan.

 

Balance Sheet

 

September 30, 2022 compared to December 31, 2021

 

Net real estate decreased by $8,239 due to capital improvements of $34,879, recorded during the nine months ended September 30, 2022 offset by depreciation expense of $43,118 on the MapleTree Property.

 

Prepaid expenses increased by $16,900 primarily due to the timing of payments on both directors and officer’s insurance premiums and insurance on the Mapletree Property.

 

Mortgage escrow increased $21,928 due to the timing of payments of insurance and improvement payments on the Mapletree Property.

 

Accounts payable and accrued liabilities increased by $116,783 primarily due to higher legal fees for the exploration of strategic growth transactions for the Company.

 

Other liabilities decreased $18,765 due to decreased security deposits and prepaid rent.

 

Liquidity and Capital Resources

 

We obtain funds for working capital and investment from our available cash.

 

On September 30, 2022, we had $154,651 in available cash, a decrease of $70,378 from $225,029 available at December 31, 2021. This decrease in cash and cash equivalents was due to cash provided by operating activities of $18,653, cash used in investing activities of $34,879, and cash used in financing activities of $32,224.

 

Operating Activities

 

Cash from operating activities includes net cash received from rental property operations. For the nine months ended September 30, 2022, cash received from interest on cash balances was $11. Net cash received from rental property operations was approximately $830,000 at September 30, 2022. Net cash received from rental property operations is before additions and improvements and mortgage amortization.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

21

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

None

 

Item 4. Controls and Procedures

 

  (a) Evaluation of Disclosure Controls and Procedures

 

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, herein referred to as the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

 

  (b) Changes in Internal Control over Financial Reporting

 

The principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting, herein referred to as internal control, to determine whether any changes in internal control occurred during the nine months ended September 30, 2022 that may have materially affected, or which are reasonably likely to materially affect internal control. Based on that evaluation, there has been no change in the Company’s internal control during the nine months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

22

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In the ordinary course of business, we may be subject to litigation from time to time. Except as discussed below, there is no current, pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of such party) which in our opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.

 

There is pending in the Supreme Court of the state of New York county of New York (Index No. 656191/2017) an action entitled MLF3 NWJ LLC filed in October of 2017, against Nickolas W. Jekogian, III, Presidential Realty Corporation, Presidential Realty Operating Partnership LP, First Capital Real Estate Trust Incorporated, First Capital Real Estate Operating Partnership, Nickolas W. Jekogian, JR. as trustee of The BBJ Family Irrevocable Trust, Alexander Ludwig, Signature Group Advisors LLC, Richard Brandt, Marjorie Feder as Executrix of the Estate of Robert Feder, Jeffrey F. Joseph, Jeffrey Rogers.

 

The litigation is related to actions taken by Mr. Jekogian individually on a real estate project and personal guarantee that predated his involvement with the Company.  The Plaintiff had received a judgment against Mr. Jekogian for approximately $1,500,000, in addition to attorneys’ fees, and had filed a lien on assets owned individually by Mr. Jekogian including certain options and warrants to purchase stock in the Company.   When the Company entered into the Contribution Agreement with FC REIT in January of 2017, Mr. Jekogian surrendered these options and warrants to purchase stock in the Company as part of the transaction.    The Plaintiff is arguing that they had a lien on Mr. Jekogian’s options and warrants in the Company and that the actions taken by the Company, its Officers and Directors, in entering into the Contribution Agreement with FC REIT fraudulently conveyed their interests in the options and warrants owned by Mr. Jekogian and damaged their position.    The Company, its Officers and Directors, named in this action had no involvement in this personal matter relating to Mr. Jekogian and answered the complaint in February of 2018 stating that it had no merit.   Since that time, the Company has received no additional notification that the action against the Company, its Officers and Directors is moving forward.   The Company believes that as to the Company, Officers and Directors, the claims have no merit.

 

Item 6. Exhibits

 

31.1   Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2   Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1   Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

23

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of November 2022.

 

  PRESIDENTIAL REALTY CORPORATION
     
  By:  /s/ Nickolas W. Jekogian
   

Nickolas Jekogian

Chief Executive Officer and Chairman
of the Board

   
  By: /s/ Alexander Ludwig
    Alexander Ludwig
    President, Chief Operating Officer and
Principal Financial Officer

 

 

24

 

 

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